Granules India Ltd. share price target

Granules India (GRAN) is a vertically integrated pharmaceutical company, headquartered in Hyderabad, India. GRAN is one of the largest manufacturers of key APIs like Paracetamol, Ibuprofen, Metformin, Guaifenesin and Methocarbamol for developed and emerging markets.

Q2FY20 revenue grew by 20% YoY driven by higher sales in Formulations (FD) (~34%YoY) segment and PFI (Pharmaceutical formulation Intermediaries )(~37%YoY). Granules to exit the JV business in Omnichem (India) and Biocause (China) citing lower capacity utilization and issues related to environment compliances in China. EBITDA registered a 37% growth YoY while margin improved by 260bps to 19.7% on account of better capacity utilisation while...

Granules (GIL) posted revenues of INR 6,995mn with 20.4% YoY increase, which was 10% higher than our estimate of INR 6,337mn. Revenue growth was mainly driven by PFIs (43% YoY growth) and Formulation (FD) (34% YoY growth) segments, led by new product launches and better pricing in existing products in the regulated market. EBITDA margin expanded by 322bps to 20.5% level was 159bps higher than our estimate due to 322 bps improvement in gross margin led by improved product mix and easing RM costs. Adj.PAT came above our estimate at INR958mn (est INR671mn) driven by the operationally superior performance. During the quarter, GIL sold its 50% stake in Granules Omnichem JV for ~INR1,099mn( 2.2x Book Value) to JV partner. As it does not delivering desired result with lower capacity utilisation and lower return on capital. GIL is also initiated to sell its stake in...

The mgmt is confident in achieving 20/25% revenue/PAT CAGR over the next few years driven by the ramp up in formulations and US sales by leveraging its expanded facilities. Increased efficiencies and oplev will enable EBITDA margin improvement (+200bps to 19% over FY19-21E). With limited capex requirements over the next few years, healthy FCF (Rs 1.5bn+ annually) will enable debt reduction (net debt at Rs 8.63bn now). We model 16/23/22% revenue/EBITDA/PAT CAGR over FY19-21E. At 8.0/6.5x FY20/21E EPS, Granules is trading at a steep discount to peers. Improving fundamentals and promoter pledge release will drive re-rating. We maintain BUY on Granules following yet another quarter of robust YoY growth driven by expanded capacities. EBITDA margin at 19.9% was 300bps above estimates, despite a 5% miss on revenue. Our TP is unchanged at Rs 170 (12x FY21E EPS).

Granules (GIL) posted revenues of INR 5,953mn with 31.3% YoY increase, which was slightly below our estimate of INR 6,235mn. Revenue growth was mainly driven by the Formulation (FD) (57.6% YoY growth) segments, led by gMethergine along with new product launches and better pricing in existing products in the regulated market. FD revenue contribution stood at 48% vs 40% in Q1FY19. EBITDA margin expanded by 391bps to 19.9% level, was 323bps higher than our estimate due to 490 bps improvement in gross margin led by improved product mix and easing RM costs. Adj. PAT came above our estimate at INR832mn (est INR650mn) supported by higher profits from the JVs (INR...

As was indicated by the mgmt., Granules has achieved a significant ramp up in revenues (+35% YoY in FY19P) on the back of expanded capacities. While margins remained subdued over the year owing to raw material cost pressures and lack of US approvals for new API plants, better business mix and moderated RM prices will enable a recovery in margins, and the robust revenue growth will also reflect in improved EBITDA/earnings. Granules is out of its capex phase and healthy FCF will enable reduction in debt hereon. The co is also committed to relinquish its pledge (down 17% to 43% of promoter holding since Dec-18), which has been the key overhang on the stock. At 9.7/7.9x FY20/21E EPS, Granules is trading at a ~40% discount to peers. Improving return ratios and steady growth outlook merit a higher multiple. We maintain BUY on Granules following another strong quarter which was in-line with our estimates. Our TP is unchanged at Rs 170/sh (12x FY21E EPS).

Granules (GIL) earnings came above our estimate mainly led by higher profits from JV's . The company posted revenues of INR 6,133mn with 21.7% YoY increase which was slightly below our estimate of INR 6,355mn. Revenue growth was mainly driven by the Formulation (FD) (58.9% YoY growth) segments, led by gMethergine along with new product launches and better pricing in existing products like Ibuprofen. Despite higher contribution from FD (47% vs 36% in Q4FY18) EBITDA margin contracted to15.9% level, was 136bps lower than our estimate due expensing out R&D; cost and higher provision for non moving inventories. Adj. PAT came above our estimate at INR640mn (est INR571mn) supported by higher profits from the JVs (INR 190mn vs INR 32mn( YoY) vs INR 21mn (QoQ) due to cyclical nature of the business. Tax expense for the quarter stands at 30.9% compared to 35.6% same quarter last year....

Q4FY19 revenue grew by 22% YoY driven by higher sales in Formulations (FD) (~47%YoY) segments and API (Active Pharmaceutical Ingredient)(~19%YoY). EBITDA registered a 83% growth YoY while margin declined by 200bps to 16% on account of higher other expenses. PAT is up by 123% YoY due to higher profit from the joint venture business (Rs19cr vs Rs3cr %YoY)....

1.5 Key concall highlights: (a) GRAN guided for CAGR of 20% in sales and 25% in PAT over next three years. (b) The company aims to reduce net debt of INR9.1b by at least INR500m in FY20. (c) R&D; spend to be INR1.8b (~60% to be expensed through P&L;) in FY20. (d) FY20 capex guided at ~INR1.5b Valuation and view: We raise our FY20/21 EPS estimate by 2.5%/4.3% to INR10.5/INR12.7 to factor in growth in the formulation business and enhanced API opportunity. We continue valuing GRAN at 13x 12M forward earnings to arrive at a TP of INR150 (prior: INR139). We re-iterate our Buy...